Gold racks up best quarter in year with almost 8% gain - Wealth Managers

October taper from the Fed likely off table as shutdown, debt-ceiling fight roil markets

Gold can now boast its best quarterly performance in a year, having gained abut 7.7% since July after April's major correction, which included the biggest two-day drop in 30 years. However, the metal is facing stiff resistance at the $1,350 level even as the U.S. government faces a shutdown as Congress feuds over funding Obamacare.

"Gold is disappointing traders who have expected a big rally on dollar weakness and the fear of an imminent shutdown,"said Kevin Kerr at Kerr Trading International. But "gold remains very volatile and could suddenly spike should the shutdown take place."

Gold dipped slightly Monday, falling under $1,330 after an earlier run above $1,340, but don't think stocks have been immune from the federal turmoil either. The Dow Jones Industrial Average dropped 128.57 points to 15,129.67; theS&P 500 index lost 10.20 points to 1,681.55; and the Nasdaq declined 10.12 points to 3,771.48.

The overall uncertainty over the U.S. budget and the debt ceiling, which Treasury chief Jack Lew says the government will hit Oct. 17, has many investors bullish on gold. "Hedge funds' combined holdings in gold futures rose the most this month as continued U.S. monetary stimulus spurred investors to sell short contracts and sent prices toward the first quarterly advance in a year," Bloomberg reported.

"The net-long position in bullion jumped 12% to 78,654 futures and options in the week ended Sept. 24, the most since Aug. 27, U.S. Commodity Futures Trading Commission data show. Long wagers gained 1.8% and short bets fell 17%, the biggest drop in four weeks. Combined net-long holdings across 18 U.S.-traded commodities climbed 1.7%, the first gain in September," the news agency reported.

Seventeen traders and analysts surveyed by Bloomberg expect prices to rise this week, with seven bearish and three neutral. That's the second consecutive bullish weekly survey, the first back-to-back positive outlook since July.

One strong bet arising from the congressional feud is that the Federal Reserve is unlikely to taper its stimulus program until December at the earliest. "The Fed has made it clear that the economy is weak, and the stimulus spigot will be open full-bore," said John Stephenson of First Asset Investment Management. "That means they're continuing to inject more into the money supply, and that is a bullish argument for gold."

The Fed meets next on Oct. 29-30. "It seems to us that the central bank will likely stand pat again, perhaps not wanting to take two completely different directional views on rate policy in the span of just 30 days," INTL FCStone analystEdward Meir said in a note.

Even Fed cheerleader Business Insider concurs: "After the Fed declined to reduce the pace of its bond purchases at its September meeting, a bunch of folks predicted we'd see'Octaper,' meaning the tapering of purchases would come in October. That now seems incredibly unlikely. Between the likely government shutdown and the debt ceiling fight, it's virtually impossible to imagine the Fed adding to the chaos by taking a tightening stance."

A shutdown won't halt essential services, but those services don't include the economists at the Commerce and Labordepartments who calculate many of the reports by which the Fed makes its monetary policy decisions. Business Insider quoted a note from Societe Generale: "A government shutdown could interrupt the flow of economic data. At such a critical time, when the Fed has made clear that any decision on tapering will be data dependent, that means no data, no decision."

Although an eventual tapering decision can hurt gold, it's probably not coming until December at the earliest, and probably not until 2014, if at all. 

More information can be found online at http://www.goldbullionadvisors.com